The interest rate markets are exerting a downward pull on EURUSD, which for the moment it’s doing its best to resist. US interest rate at the short end have been rising of late (2Y up 13bp past two weeks), but the dollar has been reticent to react in a meaningful way. The Fed meeting later this week may change that, but for choice, the Fed are unlikely to want to encourage a firmer currency at this point in time. The current ambivalence of the dollar is also apparent on cable, which touched the 1.45 level during yesterday’s session as the market continues to play sterling more as a risk currency. Most measures of risk aversion have been falling of late, supporting a recovery in those currencies that have taken the hardest beating so far this year and sterling falls into this camp. This comes despite the uncertainties created by the impending EU Brexit referendum, the impact of which remains apparent in the options market.
For today, the more cautious tone to equities seen in Asia has allowed the yen to creep back below the 110.00 level, currently just below the 111.00 level as we creep towards the BoJ meeting on Thursday. The kiwi has also been strengthening ahead of the RNBZ meeting late tomorrow, where rates are seen holding steady at 2.25%, but there are some that see some risk for an easing, so it pays to be cautious going into it. We see a raft of US data later in the day in the form of Durable Gods, S&P/Case-Shiller house prices, the Markt PMI and US consumer confidence. None of these should have a major impact on the dollar.